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Compute the avoidable interest incurred

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Reference no: EM133091508

Question - On January 1, 2024, DeComb Corporation engaged McKay, Inc. to design and construct a complete modernization of DeComb's manufacturing facility. Construction was begun on June 1, 2024 and was completed on December 31, 2024. DeComb made the following payments to McKay, Inc. during 2024:

Date

Payment

June 1, 2024

$6,000,000

August 31, 2024

9,000,000

December 31, 2024

7,500,000

In order to help finance the construction, DeComb issued $2,916,667 of 10-year, 9% bonds payable, issued at par on January 1, 2024, with interest payable annually on January 1st.

In addition to the 9% bonds payable, the only debt outstanding during 2024 was a $1,250,000, 12% note payable dated January 1, 2020 and due January 1, 2030, with interest payable annually on January 1.

Required - Compute the amounts of each of the following (show computations):

1. Weighted-average accumulated expenditures qualifying for capitalization of interest cost.

2. Avoidable interest incurred during 2024.

3. Total amount of interest cost to be capitalized during 2024.

Reference no: EM133091508

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